Patent Agreement Renews Fight. (Electronic Trading Jeopardy)

Article excerpt

To guarantee its use of the electronic trading system it's built around, the IntercontinentalExchange (ICE) is the first to sign a licensing agreement with eSpeed for use of its Wagner patent.

The Wagner patent, granted by the U.S. Patent Office to former CFTC Executive Director Susan Wagner in February 1990, stakes claim to computerized bid/offer matching systems used in almost every electronic trading system. The patent first belonged to the World Energy Exchange, for which Wagner was working at the time of filing for the patent, became property of Electronic Trading Systems Corp. (ETS) in the 1990s and finally was purchased by eSpeed in April 2001.

The patent has been controversial because of the widespread growth of electronic trading in the United States, from the Chicago Mercantile Exchange's (CME) Globex to the Chicago Board of Trade's (CBOT) Project A (now replaced with a/c/e) to the New York Mercantile Exchange's (Nymex) Access. eSpeed contends that U.S. futures exchanges involved in electronic trading are infringing on its patent. The U.S. futures exchanges, and most market participants, balk at that suggestion and argue that the patent is too general and would unfairly apply to electronic trading systems already in use at the time of patent filing.

The ICE is hedging itself, however, and licensing the patent from eSpeed for $2 million per year, plus an additional 10 per order with higher fees for orders more than $50,000 notional value, until the patent expires in February 2007. eSpeed bought the patent from ETS for $1.75 million plus 12% of fees it charges others for use of the patent. …